The Daily Telegraph disclosed on Wednesday how Stephen Dorrell, the chairman of the health select committee, has secretly arranged for the owners of a nursing home chain to buy his London flat – which he now rents back at taxpayers’ expense.

Mr Dorrell made a £70,000 paper profit in the deal, which was not publicly declared. He said that capital gains tax was not paid on the transaction when he sold it in 2010 because he had funded tens of thousands of pounds of improvements on it from his own pocket.

The arrangement was only disclosed after the Independent Parliamentary Standards Authority agreed to release a partial list of MPs’ landlords following a Freedom of Information request by Channel Four’s Dispatches programme.

Information disclosed by Ipsa showed that Mr Dorrell is renting a second home from Linton and Denise Connell in central London, paying the pair £17,033 in rent in 2011-12, which works out at around £1,400 a month.

Mr Dorrell said he arranged for Mr and Mrs Connell, whom he described as his friends, to buy the flat when MPs were banned from claiming mortgate interest in 2010. The Connells run St Cloud Care, which runs a string of care homes in Worcestershire, providing care for 300 people.

Labour said there was a clear conflict of interest because Mr Dorrell’s committee had started an inquiry into social care on June 14 and other committee members had not been informed about the financial relationship.

Last night John Mann MP said he was reporting Mr Dorrell to John Lyon, the Parliamentary standards commissioner, for not earlier coming clean about the relationship to his committee.

He said: “There is a clear conflict of interest. His committee is looking at the issue of care homes and yet he has a financial relationship through his property and care home owners, indeed care home owners who have been criticised by the Care Quality Commission this year.

“His failure to declare this relationship compromises his independence and he needs to resign from his position as chairman of the select committee, or at least stand down during this inquiry.”

Mr Lyon will inform Mr Mann by the end of next week whether he intends to launch a full investigation into Mr Dorrell. If that happens, Mr Lyon will compile a report which is submitted to a committee of MPs to decide if Mr Dorrell should be punished.

Mr Dorrell said he had told the committee, who were on a visit to Scandinavia, about the rental agreement on on Wednesday, but he said that he did not think it raised any issues for them. He added that he was “very happy for Mr Lyon to look at it” [the rental arrangement].

He was health secretary in John Major’s Government between 1995 and 1997 and is an influential voice in elderly care, one of the Government’s most controversial policy areas.

Earlier this year, his stock had risen so high that he was considered as a contender to return to the Cabinet.

However for the second day running, David Cameron failed to get involved in the row, which came after concern that the rental deals for 51 MPs were kept secret by Ipsa for security reasons.

The Prime Minister’s official spokesman said it was a matter for Ipsa. He said: “There have been various reports in newspapers this week about this. I have no doubt that these are issues that Ipsa will want to respond to. These are issues for Ipsa. It is independent and it should remain so.”

Mr Cameron’s slow reaction to the latest revelations has drawn comparisons to the sluggish way that Labour Prime Minister Gordon Brown reacted to the Telegraph’s revelations about the MPs’ expenses scandal in 2009.

Ipsa said that it appeared no rules had been broken because MPs are only banned from renting from family members and companies in which they have an interest.